By Keith Weiner
Bitcoin and Credit Transactions
Last week, we said:
It is commonly accepted to say the dollar is “printed”, but we can see from this line of thinking it is really borrowed. There is a real borrower on the other side of the transaction, and that borrower has powerful motivations to keep paying to service the debt.
Bitcoin has no backing. Bitcoin is created out of thin air, the way people say of the dollar. The quantity of bitcoins created may be strictly limited by Satoshi’s design.
The mad-cap rally in bitcoin has continued – as we recently pointed out, the chart pattern is highly reminiscent of the pattern in gold in the 1970s. The current phase is mimicking the 1979 blow-off move. [PT] – click to enlarge.
We referred to the dollar as being borrowed into existence, to make our point that the dollar’s value is pretty firm, due to the struggles of debtors. By contrast, bitcoin is created ex nihilo (yes, yes, at a limited rate and subject to an ultimate cap on its quantity).
A reader took exception to the idea, and asserted that bitcoin is borrowed and lent all the time. We would like to address this, though first noting that this reader failed to address our point. A bitcoin is not, itself, a debt. It is not borrowed into existence. Now we will consider the reader’s point whether there is any real borrowing in bitcoin at all.
The problem with borrowing a currency which its proponents tell us will go up another 30 times (and which has gone up 6.6 times in the past year) is that your payment is going up. Would you buy a house with a monthly payment of $1,000 a month, knowing this payment would go up to $6,000 by the end of the year and to $180,000 in a few more years?
That reader dismisses such concern by noting that all transactions have risks. But this is not an ordinary risk. This is the risk of shorting a once-in-a-generation technology boom. Anyone who borrowed bitcoin a year ago at $585 would be bankrupt today at $3850.
The last time we had such a craze was the dot com boom of the late 1990’s. Few would have shorted the NASDAQ. Perhaps nimble and aggressive traders, but certainly not ordinary businesses who were just trying to finance building a new retail store or buying a machine.
A US-based commercial bitcoin mining operation. Keith makes an important point below: acceptance of bitcoin by merchants remains entirely dependent on the fact that it can be instantly converted to fiat money on bitcoin exchanges. That is why we often state it can at most be regarded as a secondary medium of exchange at the current juncture (apart from being a great trading sardine). [PT]
Photo via coindesk.com
We say “shorting”, because that is the simplest and clearest way to understand borrowing in a foreign currency. If you borrow bitcoin (or Argentinian pesos) then you owe the return of that …read more
Source:: Acting Man
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